CASE: Older couple approaching retirement with adult children

Sushil and Meena are aged 60 and are looking forward to retirement in a couple of years. They own their own home and have $600,000 in superannuation. They have two adult children - Ramesh aged 27 who is married with two young children earning $60,000 per annum and Pallavi 25 who has just finished a university course and started her first job in accounting earning $50,000. What if Sushil and Meena don't take out insurance? Sushil and Meena don't believe that they need insurance for themselves anymore as they have no debts, accumulated savings and their children are grown up. However their daughter Pallavi is diagnosed with Chronic Fatigue Syndrome and is unable to work for a period of 2 years and she comes to live with Sushil and Meena. Their son Ramesh who is the main breadwinner in his family and works as a plumber suffers a serious back injury which means he is unable to work in this occupation again. Meena has to become a full time carer of Ramesh and his two children while his wife returns to work as teacher. Sushil and Meena loan money to Ramesh and his wife to help them meet their expenses and are considering mortgaging their home so that they can provide them with a deposit to buy a house as their home ownership dreams are fading away. Sushil estimates he will need to work well past 65 in order to support his adult children and try to rebuild his retirement savings. What Insurances could Sushil and Meena have taken out? As it turns out one of the main threats to Sushil and Meena's retirement was a serious injury or illness affecting their children which required their support in terms of both time and finances. By taking out insurance for their children they could have protected against this. Because their children are relatively young the cost of this insurance is inexpensive and level premium policies are not much more expensive than stepped policies. By taking out these covers when their children are young and healthy they are putting in place valuable cover which their children can assume responsibility for when their finances allow.
1. Income Protection

Sushil and Meena could have provided the funds for Ramesh and Pallavi to purchase income protection cover (the policies would be owned by Ramesh and Pallavi so that they could claim a tax deduction for the premium). Each of them could cover up to 75% of their income with a benefit period to age 65 which would ensure that they were covered for both short term and potentially long term sickness or injury. Including the claims escalation option in these policies would be particularly important to ensure that when they were on claim the payments they received were indexed to inflation.

2. Life Insurance and TPD

To supplement the income protection payments Sushil and Meena could have taken out TPD cover of say $500,000 to provide a lump sum in the event of permanent disablement. This would have been particularly useful in the case of Ramesh's injury as it would have allowed his family to purchase a home. Similarly a much larger death benefit of say $1,500,000 would have been required to fund the purchase of a home and also to provide a lump sum for Ramesh's widow to draw upon while bringing up their two children. While Sushil and Meena are paying for the policies they will need to ensure that they are be named the beneficiaries of the policy so they can determine how the proceeds of the policy will be spent in the event of the death of their children.
3. Trauma Insurance

Sushil and Meena could include an amount of trauma cover of say $200,000 to cover a serious illness or injury which was not permanent but which would involve time off work and medical expenses and significantly affect their children's finances and prospects. What if Sushil and Meena had taken out these insurances? Both Ramesh and Pallavi would have received income protection payments which enabled them to live independently of their parents and without needing to call on them for funding. In Pallavi's case she would have been supported until she was ready to return to work and she would have received partial payments from the policy if she was only able to manage to work 2 or 3 days a week. Ramesh would receive the payments from his policy until age 65 and these payments would be indexed to inflation each year. In addition the TPD payout of $500,000 which Ramesh received would enable his family to purchase a home and remain financially independent. Importantly for the small cost of these insurances Sushil and Meena can be confident that their retirement plans will stay on track and their children will be well cared for.